China’s quick development and modernization programme entails a soaring demand for energy in order to power its heavy industry and its expanding transport systems. By 2010 the country had become the second largest world economy, surpassing Japan. As an illustration of the scale of its rapid modernization, it is worth mentioning that 74000 km of express railway have been built in just 10 years, making China’s the second longest expressway network in the world after the US. Also in 2010 Chinese people bought more cars than any other country, more even than America (13.5m compared to 11.6m in the US). All these bring a huge thirst for energy that significantly changes the geopolitical and geo-economic landscape not just of the Asian Pacific area but of the entire world.
A clear example of how Chinese economic expansion influences the world economy is in the commodities global price. According to the Economist, industrial commodities (usually raw materials such as iron ore, copper, crude oil, rice etc.) prices went down by around 80% in real terms between 1845 and 2002 but started to rise again in the last decade, because of developing countries’ increasing demand, notably of China.
The country relied on coal for energy production for the past century and still does – the air in many of its industrial cities is unbreathable because of mines exploitation, it is filled with smog, the sky is never blue and people cough and spit all the time to clean their throat and lungs from the toxic particles. Between 2000 and 2008 China tripled its coal-fired electricity generation according to OECD/IEA figures but small steps are being taken towards other forms of considerably cleaner and more efficient energy sources.
A first step is replacing heavily polluting coal with oil and gas consumption – oil meets about 25% of the country’s energy needs and its share is still growing. Oil might be better than coal for China but it has devastating external effects. During economics slow downs like the current one, the price of oil usually follows the same trend, but at the moment is is close to $100/barrel, up from $77 in 2009 and $58 in 2008!
Much of the explanation lies in the increased demand coming from Chinese fast growing economy. Other price spikes in spring-summer of this year are linked to precautionary demand from the big oil consuming states because of geopolitical risk triggered by political unrests in North Africa and the Middle East.
China was a net crude oil exporter until 1993 but failure to find new fields that would have sustained the socialist industrialization plans led to a shift in geopolitical relations. The country started implementing economic reforms and opened its borders to foreign trade and investments. In recent years China shifted its interest to Africa, mainly because of its rich oil and minerals subsoil.
Historically, there are no animosities between China and the African countries like Sudan, Zambia, Angola, Libya, Egypt or Syria. This is in contrast to the US and Western Europe, which some Chinese might still see as old oppressors from the opium wars or the cold war era while some African countries might still hold some grudges against the Western world (as greedy colonialists and slave masters). At the moment 35% of Chinese oil needs are covered from African imports (mainly from Angola) and the two-way trade grew by 39% in 2010, making China the second largest trading partner of Africa, after the US. This speaks volumes about the scale of Chinese economic growth and their strategic energetic interests in Africa.
It must be said that many Sino – African relations are troubled by corruption, breaches of health and safety regulations by Chinese entrepreneurs, environmental degradation, low quality of Chinese goods and overall poor business practices imported by the Chinese. It is not unusual for Chinese financed mines or building sites to register work fatalities and for outspokenly disgruntled local workers to be shot dead by Chinese supervisors. Many consumer goods, from solar panels to IT gadgets or home appliances, sold on African markets are of very low quality. Newly build schools, hospitals and roads might even crumble soon after being built. Despite all these, African dictators such as Colonel Gaddafi of Libya, Omar al-Bashir of Sudan or the Assad “dynasty” in Syria were eager to do business with semi-socialist China, showing a blatant disregard for their own people’s welfare and for environmental aspects. All it mattered in the end was to fill their and their family and friends’ purses with valuable Chinese investments.
In its turn China needed African minerals and oil and its hands-off foreign policy of non-interference with internal affairs in other countries has offered a good pretext of doing business with whoever happened to be in power.
It is true that China recognised the independence of oil-rich South Sudan when it seceded from totalitarian Sudan in July. It also voted in favour of UN sanctions against Colonel Gaddafi and sent out chartered flights and military airplanes to rescue Chinese citizens from terror-stricken Libya. On the other hand it had talks with the oppressive regime to sell them weapons in July. Moreover, when the US and the EU imposed economic barriers refusing to buy Syrian oil (a full embargo will start in November) in order to help the country get rid of the totalitarian Assad regime, China (together with India) offered to buy oil from Assad. This might help rehabilitate the country’s income from oil exports while at the same time appease some of Chinese insatiable appetite for the golden liquid, plus get China a very good deal from a desperate Syria who lost 95% of its oil export markets, represented by the US and EU. Thirsty for oil and other energy products and eager to sell its machinery and industrial outputs (be them weapons) China is not discriminating between moral and immoral or criminal regimes.
The question is what will happen in the aftermath of the Arab spring and collapse of authoritarianism in African countries like Tunisia, Egypt or Lybia. China needs their energetic resources and access to their markets to sell its goods (be them industrial on more recently consumer goods) so it might have to reconsider its support to old undemocratic regimes. It will also have to work to improve its business practices, the quality of its goods and also its tarnished image among African employees and clients.
However Africans need China for its strong investments in their poor economies. For example, Zambia’s president had criticised China in the past for its ruthless exploitation of his country’s natural resources and labour force. China needs Zambia’s copper riches and a large part of the country’s feeble GDP comes from Chinese investment, which doubled over the last year. Therefore it is unlikely that the two countries will reduce or cease trade relations.
Hunting for oil in Africa and Middle East to sustain China’s booming industrial activity springs problems related to energy security if the country is to increasingly collaborate with “unsafe” regimes in Africa (like for instance Mugabe in Zimbabwe) or Middle East (for example Iran who is China’s third largest supplier of crude oil apart from being a big buyer of military vehicles, war missiles and other military goods) and huge environmental pollution and climate change. Another pressing issue is the ever increasing price of oil, triggered by soaring demand from China and affecting all other countries in the world. The International Monetary Fund believes that a 10% increase in oil prices slows the global GDP growth by 0.2 – 0.3%. Therefore more investment in research and development of renewable energy like solar, wind, biomass, marine or geothermal (nuclear is more and more phased out, especially after the Fukushima nuclear disaster in Japan) is needed as an alternative to expensive and environmentally unsustainable oil and gas.
However what China needs apart from ever-growing resources of energy is good management, efficient economic and business systems and know-how for its intensifying trade with industrial equipment and goods. Unfortunately energy inefficiency in industry is alarmingly high (many Chinese industries need 3.5 times more energy to produce the same outputs as European industries and pollution is much more higher). This is because the sector is dominated by large State Owned Enterprises that have not been completely reformed, are extremely polluting (most of them fired on coal) and lag behind in terms of technology, management and know-how. Smaller scale plants and oil-fired engines, not to speak of combined oil and renewable, are far more efficient. Advisable would also be investing in research to find alternative technologies in many toxic sectors and industries. For example for the production and safe recycling of old lead-acid batteries used by vehicles and which are extremely toxic. Even small amounts in the air can cause brain and kidney damage and learning difficulties in children. Needless to say that lead poisoning is one of the most common child health problems in China.
Yet it is important to bear in mind that much of the energy consumed in China is used to produce goods sold in the rest in the world. Almost 25% of Chinese exports went to the US in 2010 despite the recession. In 2009 China was the main source of EU imports of machinery and vehicles and other manufactured goods, which represent over 50% of the imports. The Middle Kingdom has become the workshop of the world, replacing energy demand in other countries. Therefore big importers of its goods should contribute towards the cost of pollution and support the country in achieving better standards of environmental protection and business expertise. They should also help her to make investments in cleaner technologies for the production of energy. Increased green energy sources to replace conventional ones could also mean lower prices of oil and gas, better air quality and health for Chinese citizens, less energy insecurity in the world and less risk of climate change for the future… a win-win situation for everyone.